MANAGEMENT DISCUSSION & ANALYSIS REPORT

INDUSTRY OUTLOOK AND OPPORTUNITES

Your Company's operating results are significantly influenced by macro-economic trends such as industrial production, capital spending on process and building automation, commercial and infrastructure construction, commodity priees, and foreign exchange variations.

In the period 2015-16, the economy witnessed signs of growth revival, and some of the key macroeconomic indicators have started moving in the right direction. GDP has begun to show an improving trend, fiscal deficit reduction is as per plan, inflation has also moderated, RBI has also reduced interest rates. While growth has improved, investment activity across sectors, particularly in oil and gas, and industrial continued to remain muted. Bank lending activity to the corporate sector has not increased significantly. The early signs of economies revival, along with legislative and regulatory actions taken by the Central Government in 2015 should prove beneficial to the overall industry.

Economies and industry conditions impacting your Company's customers have an impact on your Company's operations. Some of the important market conditions were:

• Slow pace of capital investments continued in most areas that Honeywell Process Solutions (HPS) operates in.

• The commercial sector, which is of critical importance to Honeywell Building Solutions (HBS), continues to show signs of cautious growth, and core infrastructure spends by the public sector are improving.

• Inventory in the residential sector continues to be high, but expected to improve as developers launch budget housing options. These trends have impacted your Company's Environmental and Energy Solutions (E&ES) business.

• Manufacturing activity in core industrial sector is a critical driver for your Company's Sensing and Productivity Solutions (S&PS) business. While activity in this sector has remained muted for 2015, it remains to be seen whether several positive drivers including Make in India initiatives will help drive a favorable trend in the near future.

• While the impact of lowering oil priees has been beneficiai to the Indian economy, your Company provides services to Honeywell entities located in regions that produce as well as process oil (North America and Middle East). The growth in these geographies has been moderate. This impacts your Company's operations negatively by reducing opportunities to serve those markets.

Honeywell Process Solutions (HPS):

HPS' wide portfolio of industrial automation products and solutions help customers operate safe, reliable, efficient, sustainable, and more profitable facilities. HPS' offerings include distributed control Systems (DCS), transmitters, programmable logic controllers, emergency shutdown Systems (ESD), quality controls Systems (QCS), process and business performance improvement solutions, and various value-added services. The HPS business has won several brstigious projects in the last year despite market headwinds.

HPS will need to drive continued focus on its core strategies to brvail over the economie environment, slow recovery in industrial production growth, and continued competitive brssures in the market. Greenfield opportunites, particularly in the refining sector, are fewerdueto uncertainty of investments in oil and natural gas, petrochemicals, andfertilizers. Given the diversity of products and solutions, your Company will strive to sustain its performance.

Honeywell Building Solutions (HBS):

Honeywell Building Solutions (HBS) provides automation and control technologies that help make buildings green, safe, and productive. As partof its intelligent buildings suite, HBS provides building management Systems, Heating Ventilation & Air Conditioning, lighting, and utilities' monitoring & control, fire detection and alarm Systems, access control Systems, video surveillance Systems, integrated security Systems, and integrated building management Systems based on Honeywell's Enterprise Buildings Integrator™. As part of its operational efficiency promise, HBS provides aftermarket services for ail control Systems as well as combrhensive utilities' operations and maintenance services for ail mechanical and electrical Systems in buildings. HBS also provides energy management services, demand response solutions, energy retrofits, and energy performance contracts.

This business continued to demonstrate strong results through the year. Its track record in infrastructure, transportation, Information Technology, data centers, pharmaceutical, and commercial space verticals helped expand its brsence in Government, telecommunication, and healthcare verticals in 2015. The highlights of the year were significant wins in city surveillance projects for various cities in India.

Environmental and Energy Solutions (E&ES):

E&ES business portfolio comprises of commercial real estate, residential and industrial verticals. 2015-16 was a critical year for E&ES as it witnessed strong sales and profit growth. Aiming to deliver the best customer experience in the industry, E&ES undertook several process improvement initiatives throughout the year.

Differentiated products coupled with effective key account management helped field devices and thermostats drive accelerated growth in a slowly recovering real estate market. The building management segment improved profitability by implementing a smart pricing strategy. With new product initiatives planned in the building management business, your Company will strive to sustain its performance in the future.

Sensing & Productivity Solutions (S&PS):

Despite limited market growth in core industrial sectors, particularly construction equipment and automotive, S&PS revenues grew strongly for the year. The electro mechanical portfolio performed well in 2015, along with revenue upside for limit switches and construction equipment shifters. The electro-sensing and test and measurement lines of business also grew. Despite difficult market conditions, your Company remained focused on identifying and winning new business opportunities. In 2015, S&PS secured significant program wins from key customers in transportation.

Your Company will continue to remain focused on verticals such as industrial, transportation, military, aerospace, and healthcare. Your Company plans to expand the distribution network, especially for greater coverage of industrial customers. The channel management team deployed earlier is helping grow your channel business, is allowing your direct sales team to focus on key account management.

Exports:

Global Services (GS) provides project engineering services, product design solutions, software engineering services, Systems manufacturing and staging services to several global Honeywell entities. GS drives productivity, cost competitiveness, and customer satisfaction, delivering project engineering services to global Honeywell customers. Honeywell Operating System (HOS) continues to be the backbone for GS helping drive lean operations and efficiencies.

The new Global Manufacturing facility at Fulgaon will complete two years of operations in August 2016. This is a HOS silver excellence certified facility and was declared as one of the best factories for the year 2015. The facility secured approval from many brstigious global customers.

LEADERSHIP AND TALENT:

Your Company continues to invest in human capital as a key enabler of business growth. Talent management and leadership development is an integrated set of processes aligned with business strategy to ensure the Company has the right people, organized in right way, and motivated to do the best job every day for its customers. It has mature processes like goal management, performance management, and structured feedback and development processes. Developing leadership capability in employees is a key expectation from every business leader and the company actively promotes internal movements as a path to career growth. This is institutionalized through a number of processes that run consistently across the organization. One such process, the Honeywell Management Resource Review (MRR), continually reviews leadership talent within the organization. It proactively plans for succession by assessing available talent pipeline within the Company in India and globally. This process runs twice a year across businesses and functions. Development plans ensure necessary focus on capability building and skills development to enable leaders to take up larger roles. The Honeywell Performance Development (HPD) process forms the foundation of the MRR process, ensuring that there is a consistent global framework to assess our employees on goals and behaviors, creating opportunity for objective feedback and discussion on development plans.

Your Company has adopted a multi-tiered framework tobuild leadership capability and develop the leadership bench. This includes the India Leadership Connect (ILC) focused on development of top talent for senior leadership roles, the LEAD program to build frontline managerial capability, the Honeywell Leadership Forum (HLF) focused on building self-awareness and networking among senior leaders in Honeywell India, and the Supervisory Development program (SDP) to develop supervisory skills and capability. Your Company strives to build functional leadership through initiatives such as the Emerging Finance Leadership Program (EFLP), supply chain mentoring program, sales skill building, and sales mentoring program. Your Company continues to work towards building systemic enablers to encourage diversity in the organization.

FINANCIALS

Overall net revenue from operations was Rs. 2,188 Crore, registering annualized growth of 14%. The domestic segment registered net revenue of Rs. 1,417 Crore for the current year vis-à-vis Rs. 1,641 Crore in the brvious. This growth was achieved amidst competitive challenges on pricing. The exports revenue increased vis-à-vis the brvious period mix.

Overall net income was Rs. 139 Crore. Your Company delivered a return of 6.3% on sales for the year (Previous period: 4.8%).

• Provision for doubtful debts was lower over brvious period

• Your Company continued to focus on workforce productivity delivering14% topline annualized growth with 3% growth in headcount.

The cash flow from operations at Rs. 159 Crore, (brvious period Rs. 13 Crore), reflecting higher profitability and better working capital management. Your Company will continue to drive better working capital performance and positive operating cash flows.

RISKS AND CONCERNS

Your Company generates a large percentage of its sales and profits from its business with Honeywell International Inc. and its affiliates. Sales to Honeywell accounted for approximately 30% and 28% of total net sales in current and brvious years respectively. Your Company's ability to maintain or grow its business with Honeywell depends upon a number of performance factors, including its ability to (i) identify emerging trends and customer requirements, and develop product and service offerings superior to those of its competitors, (ii) meet or surpass the price, quality, and delivery requirements of Honeywell and its end-customers in a cost-effective and competitive manner, and (iii) develop and retain employees and leaders with the necessary expertise. However, your Company cannot be assured that its level of sales and profits associated with its relationship with Honeywell will continue. Honeywell-specific business considerations (independent of its shareholdings in the Company), including changes in Honeywell's strategies regarding utilization of alternative opportunities available to it to source products and services currently provided by your Company (including from alternative sources which Honeywell may acquire or develop within its own group), may also reduce the level and/or mix of Honeywell's business with the Company. Pricing brssures on sales of goods and services to Honeywell or a reduction in the volume or change in the mix of orders or sales to Honeywell can be expected to have a material adverse impact on the revenues and profits of the Company.

While your Company is diversified in various products, industries, and geographies, major macroeconomic indicators are soft around investments in the process and construction industries. Diversification is helping it to manage these trends and your Company is expecting to achieve a fair share of demand. While the fundamentals appear to be strong, and infrastructure investments will continue to be resilient, the overall competitive landscape is becoming more and more aggressive. Volatility of foreign exchange rates continues to be a risk due to large exposure to foreign currencies that the Company has on account of imports as well as exports.

INTERNALCONTROL

Your Company conducts its business with integrity and high standards of ethical behavior, and in compliance with the laws and regulations that govern it and its business. Your Company has a well-established framework of internal controls in place, supported by policies, guidelines and procedures, including suitable monitoring procedures. In addition to external audit, the financial and operating controls of your Company are reviewed regularly by the Internal Audit team as per the annual plan approved by the Audit Committee.

Ail significant audit observations along with corrective actions thereon are tracked for resolution by the Internal Audit and Controls function, and communicated to the Audit Committee.

Your Company's Code of Conduct sets out the fundamental standards to be followed by employees in their everyday actions. Your Company also has a robust Integrity and Compliance program where ail employees undergo communications and trainings on the Code of Conduct. It enables employees to become familiar with leadership expectations on behaviors and compliance, legal requirements, avoiding conflicts of interest, providing a healthy and safe work place, safeguarding Company property and information, appropriate use of information technology resources, and understanding how to report any suspected unethical or illegal conduct, without fear of retaliation.

Summary

The mix of exports revenue increased vis-à-vis the brvious period mix. Overall revenue registered annualized growth of 14%. Net Income (after exceptional item) was 6.3% of Sales, vis-à-vis 4.8% in brvious period. Increased competitive environment in both domestic and exports segments continues to be a challenge, which is being addressed through concentrated efforts on operational excellence, driving productivity, and aggressive cost rationalization. Your Company is continuously driving new productivity initiatives to remain committed to the journey of profitable growth.